OUR Big Mac index is a fun guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that global exchange rates should eventually adjust to make the price of identical baskets of tradable goods the same in each country. Our basket contains just one thing, a Big Mac hamburger.

May I, as one of the many victims of junk food and soft drink attacks on people from consuming countries, request and suggest that THE ECONOMIST change the food products used in their otherwise very useful and interesting index? You could consider standardising a basket of fruit, for example, along with staples like a loaf of bread and butter/cheese, along with a bottle of water, as a sort of "healthy meal" Index. The big Mac Index, if you must carry on with it, could also be provided with the cost of trying to cure pancreatic and other digestive and gastro cancers, to get a more holistic view on the real costs of eating white bread with reconstituted meats.

The ubiquitous Big Mac index lost its usefulness but The Economist didn’t feel it yet. The reason for this? Big Macs are not made equal around the world anymore. The sandwich in Germany, for instance, is vastly bigger than the Brazilian version that has been going through a slow, steady and “stealthy” shrinking process for many years. To avoid this variation The Economist should drop the popular but unreliable Big Mac index in favor of a more stable and secure one. I can think of a few: a 195/60 R 15 tire; a Windows 7 Home Basic; one kilogram of rice; a 350 mL can of Coke, etc.

This index is not particularily accurate, even though many newspapers quote it as such. First, it has incorrect prices (in some cases it is Big Mac value meal, and sometimes it is just the Burger). Second how dowes it explain differently priced Big Macs amongst countries, or even parts of the same county, that use the same currency, by saying it is the currency that is mispriced? Third, it is saying the Big Mac is always correctly priced, and it is the entire currency of the nation that is incorrectly priced. Total market cap of all Big Macs in a country is only a miniscule fraction of its outstanding currency, still it is the Big Mac that is correctly priced - nonsense.
Fourth, it ignores MacDonalds different profit margins in different places, where competition is harder, one would imagine lower profit margins and thus lower prices. It also ignores local regulations, environmental, animal rights, wages, union requirements, and also general price level, intrest rates et.c. Different standards in the restaurants, differnet VAT and other taxes, et.c I could go on and on.
It is just "for fun".

The burger as made in India and other parts of the world kind of represents the same kind of "fun" that opium did a few centuries ago - a tool to knock the natives down on the ground. It is like saying, paedophilia is fun to some, would that be acceptable - I think not. The McDonalds burger in India uses maida to make the bun, and that contains benzoyl peroxide - banned in much of the Western world and even China now. It is time the ECONOMIST took note of such sensitivities. Humbly submitted.

Good point, but I think the point of using the burger (besides the fact that it was just plain fun), was that it represented a fairly diverse basket of goods and services in itself. The tire might qualify, as might the Coke, but a kg of rice seems too simple, and a licence to use a piece of US software hardly includes any local content at all.

The Big Mac Index is a catchy way of looking at inflation. But it could have one major flaw - the fact that the Big Mac itself is a specific kind of economic good whose sales fare well under certain economic conditions and don't under others.

This is a cheap burger patty - and it stands to reason that in times of recession as consumers search for cheaper food alternatives, Big Macs would actually sell well. Just like Dunkin Donuts would do well compared to Starbucks or Walmart compared to Niemen Marcus

Another way to put it is that "Yes the Big Mac combines the prices of a varied basket of goods - meat, dairy, real estate etc." But so would a very expensive Ruth Chris or Capital Grill filet mignon steak, wouldn't it? After all they also contain meat, dairy and they too need real estate. Difference is that consumers actually are likely to buy more Big Macs in bad times than good, while they will cut down on more expensive meals.

Now over time one can say that these expansions and recessions would even out and they are probably right. Looking just at the effect of the Big Mac Index over a small time period like 4-6 years may be myopic (for e.g. the Big Mac price index and CPI diverge dramatically post 2008 after the economic recession while both stayed neck to neck for some 20 years before that)

What happens with a country like Argentina, where the government has made a deal with McDonalds not to rice the price of the Big Mac? Since the Big Mac is a lot cheaper than all the other burgers, the picture it's not on display, to avoid selling it a losing money.
There are also 2 exchange rates, the official al 4.98 and the unofficial and real one at 7.72

This index is largely consistent with the OECD's latest PPP data but with some notable exceptions.

According to the OECD, Australia has seen a huge run-up in its PPP-adjusted price level in recent years (as its currency has soared) such that it is now among the three most expensive countries in the world if your income isn't denominated in AUD, 66% overvalued compared to the U.S. consumer price level. This index has Australia at just 12% overvalued.

It's also off re Japan, saying the yen is 20% undervalued when the OECD data says Japan remains 40% overvalued.

Finally there's Sweden, which the OECD says isn't as overvalued as its Big Mac prices imply, since while here the Swedish crown is deemed 75% overvalued relative to USD, the OECD reckons it's 37% over, something that becomes notable because the OECD believes Denmark is more expensive than Sweden (50% overvalued relative to USD) while Danish Big Mac prices suggest a modest 19% overvaluation relative to the greenback.

I am a big fan of The Economist and also a subscriber, but never understood this index. The high price of a Big Mac in my country (Norway) obviously has to de with the high labor costs and general price level, not the our currency....or?

It shows us the comparison of our country's purchasing power ! Wich is directly linked to the currency (because of importation and exportation so demand and offer of money). Labor costs are also linked to the force of your currency.

Remember that the "fairly diverse goods and even services" are not that much diverse because they probably come from very oligopolistc providers. The wheat, milk, paperboard, meat, fat sectors everywhere are almost certainly dominated by big controlling groups no matter which country are we talking about.